The following is a post by Sara Stringer. If interested in submitting a guest post please read my guest post policy and then contact me.

This is the story of Jane Grant (name changed to protect her privacy) a divorced mother of two from San Diego, California. As is the case with many women, the divorce had a negative impact on her finances. She and her ex-husband were barely getting by as it was, and the divorce pushed things over the edge. Although she received child support, her divorce settlement did not include spousal support and without their combined income, she started having trouble paying all of her bills.

After consulting a San Diego bankruptcy attorney, she decided to file Chapter 7. The bankruptcy eliminated a lot of her debt, and gave her the opportunity to start over, but it also presented a new set of challenges.

Getting Over the Stigma

There is a lot of guilt and shame associated with bankruptcy. Even though the combination of high unemployment rates and a sluggish economy have led to more personal bankruptcies, the fact remains that filing bankruptcy is seen as a sign of failure. Jane was no exception and, in fact, it was that fear of being seen as a failure and a deadbeat that initially kept her from filing.

What changed her mind was the realization that her financial problems weren’t because she was a bad person, but that she was in a bad situation.

After the filing, she joined a debt support group where she met people just like herself and got the emotional support she needed to rebuild her life. She also learned valuable skills, like how to create a budget and start saving for future emergencies.

Living on Cash

Jane filed chapter 7, which meant she had to surrender all of her credit cards and learn to live on cash only. She still had a bank account, with a debit card, but she couldn’t spend any more than what was in her bank account.

Living a cash-only existence helped her reduce her spending – if she wanted a luxury item she had to save up for it, instead of charging it then figuring out how to pay for it later. It also made her more aware of her spending habits.

Living cash only also had its difficulties. She no longer had that credit cushion for emergencies. If her car needed a repair, or one of her daughters had an emergency, she had to make sure she had the cash on hand, or get help from a friend or family member.

Still, even with the difficulties Jane found that it was in many ways easier to live cash-only than it was to deal with credit cards. Even now, years later, she still prefers cash over credit.

Rebuilding Credit

Bankruptcy is often considered the kiss of death when it comes to getting credit. The truth is that a person who files Chapter 7 can often get a credit card within three years of filing. In fact, many creditors will actively pursue people with bankruptcies on their records.

The problem lies in the fact that many of these cards can have painfully high interest rates. Some of the cards also charge a yearly fee up front, which means you’re already $50 to $100 in the hole before you even get the card.

Jane realized that having some kind of credit account would help her rebuild her credit, but she decided to be smart about it. Instead of getting a credit card, she opted instead to purchase a car.

She went with a late-model used car, to reduce the effects of depreciation, and she saved up to make a decent down payment. She also had clear idea of how much she could afford pay each month and didn’t budge on that number. In the end she was able to replace her clunker with a more reliable vehicle, and rebuild her credit by making her payments on time.

Thanks to her success with the car, she was later able to get a credit card with a better interest rate.

Great article. As a bankruptcy lawyer, I have seen clients receive credit card offers in the mail the same day they received their bankruptcy discharge order. Rebuilding credit after bankruptcy is much easier than most think, and I often see clients with 700+ credit scores in just a year following the close of their chapter 7 case.

My parents always taught me not to rely on credit cards (only use them for rewards) and to always have cash in handy (at least in the form of debit card). I learned to save up if I want anything and the habit continues until now so I’m really grateful for them!

Very nice insight. I think for many people bankruptcy represents a big failure and the end of your financial life, but it seems if you get your spending back on track you can get to a good spot in a few years.

Many people underestimate the impact a divorce can have on the finances. It can literally leave a well-off family living paycheque to paycheque after it is settled because of how the assets are split and the legal costs involved

I’ve known many people who’ve gone through bankruptcy and they all had a hard time making the decision to proceed. The idea that the majority of people that go through it are horrible people isn’t true. They simply lost their way and this is an opportunity for them to get back on their feet.

I had a friend that went through bankruptcy and after she received her bankruptcy discharge order, people were throwing credit cards at her. A credit card could be a great option to reestablishing credit if you are properly informed about how to choose the right card and know when to just say no to tempting purchases. All in all, choosing the card with the right interest rate is the most important. It will require quite a bit of research though so have fun!

I am just going through the process now after being victim of identity theft embezzlement. I never thought I would see the day that this would happen to me. I wake up in the morning in fear and go to sleep at night feeling the same fear, as this is no longer a safe world we live in. I am sure there are worse things to experience in life, but this is the worst thing in my life. I was always very responsible about paying everything on time. These criminals are being sent the message that crime does pay. I think I was most upset by law enforcement’s lack of response, simply telling me this is now the number one crime in the country and I’m not alone. It didn’t help much at all to hear. It feels now as if I will never get over the emotional and mental anguish I feel.